Accounting is not as simple as adding and subtracting numbers. In order to save costs, some small businesses decide to handle their own accounting, which may not be a good idea.
Accounting mistakes are costly, and could also lead to the failure of the business. Financial mistakes can stunt your business growth, clog cash flow or damage relationships with suppliers, customers, staff and other entities you're dealing with. To avoid these scenarios, here are 7 common accounting mistakes that business owners should watch out for. Whether it's calculated or inadvertent, these errors could prove detrimental to your business.
1.Trying to do everything on your own.
Come on, you're not Superman. As a business owner, you might be used to wearing many hats, but accounting should be left to the experts. It's fine if you're just starting out, but as your business grows, you'll realize that this work is time consuming and strenuous. Learn to delegate tasks. Your time is valuable and by having someone else do your accounting, you are freeing up much of your precious time. This way, you can focus on what really matters for your business, and that's growing it.
2. Going for the cheapest.
As Red Adair said, "If you think it's expensive to hire a professional to do the job, wait until you hire an amateur". Don't go for the one with the cheapest rate because a person's rate usually reflects his or her quality of service. If you think you saved money by hiring cheap, you're in for a headache. It could also lead you to costing more money in the long run. Spend a little extra if you want quality work.
3. Mixing business with personal finances.
This is a sure way to mess up your finances. It will be difficult for you to monitor cash flow if you are using the same credit card or bank account for your personal and business purchases. Open a separate bank account or credit card for your business and run all your expenditures using this business bank account. It makes bookkeeping concise and organized.
4. Not using the latest accounting technology.
Are you still using Microsoft Excel to compute payroll or worst still a really old version of MYOB? Accounting software and online tools make your accounting easy and fast. Time consuming processes like budgeting and bookkeeping are done automatically, allowing you to spend more time on your core competencies. These tools also weed out errors and inconsistencies, saving your business time and money. Take advantage of these technologies which can help your business processes run efficiently. Or better yet make your accountant and bookkeeper an admin to your software and view your balance sheet in real time.
5. Throwing away receipts.
In this world where everything is digitized, people often think that receipts and other paper trails are useless. Well, they still count. Keeping receipts provide you with answers to any mistakes or gaps in your accounting records. If there's any inconsistency, all you have to do is go back to your receipts and trace where you went wrong. Receipts are also important in validating the numbers on your financial statements. If you really don’t want to have any paper left in your office and love storing everything store in your computer. Then try an online program such as Entryless where you can take a photo of your receipt, the program scans it straight into your accounting software via the app on your phone. Simple.
6. Focusing on the short term.
With the flurry of day-to-day business operations, it is easy for business owners to completely forget about the future. Business owners are usually focused on keeping track of current numbers that they fail to think about how to use these numbers for future growth. Professional accounting also provides forecasting future growth and identifying potential risk from current financial decisions.
7. Hiring the wrong person.
Never let your brother-in-law or cousin do the accounting for your business. Hiring the wrong person can lead to financial problems that will haunt your business for years to come. Choose someone who has thorough knowledge and years of experience in business accounting. Working with the right accounting professionals can help you avoid errors that are detrimental to your business.
Choosing the best professional accountant for your business is a crucial decision because you are trusting that person with your financial future. Whether you're hiring a firm or an inside accountant, it is important to choose someone who can help you strengthen your financial function and position your company for growth.